Two Types of Assets in Accounting

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In accounting, assets are an important part of the balance sheet. The purpose of this article is to define an asset and to present the types of Assets.

Definition of Assets

The General Accounting Plan (GCP) gives a definition of an asset that may seem rather abstract in the first place: an asset is an identifiable element of the entity’s assets having a positive economic value for the entity, that is to say, An element generating a resource that the entity controls because of past events and from which it expects future economic benefits.

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Types of Assets:

Two Types of Assets are as follow

In a balance sheet, the asset is located in the left part of the table. It is divided into two categories: fixed assets (split between tangible assets, the intangible assets, and financial assets), current assets. We will detail each of its parts.

  1. Fixed Assets

This item includes all goods intended to be used in a sustainable way for the company’s business. In accounting language, these are “fixed assets”. There are three types:

  • The intangible assets: these are a non-monetary asset without physical substance. These include, for example, patents, software, goodwill, set-up costs, lease rights, research, and development costs;
  • Property, plant, and equipment: These are physical assets held for use in the production, supply of goods and services or for leasing to third parties. These may include industrial equipment, transport equipment, furniture, computer equipment, land, or a building;
  • The financial assets: these are equity securities (for exerting influence over a company or to control), granted a loan to deposit payment.

Intangible and tangible fixed assets lose value as they are used by the entity. This is why the latter must recognize an accounting depreciation each year that is supposed to reflect the “consumption of the future economic benefits” of the property.

Financial assets (investments, advances, and loans granted) cannot be amortized but may be subject to provisions, subject to certain conditions.

In the balance sheet, three columns must be distinguished: the gross amount of fixed assets, the amount of accumulated depreciation/impairment and the net amount of fixed assets.

  1. Current Assets

Certain assets are not intended to be used on a sustainable basis (such as inventories). They make up the balance sheet assets.

The current assets of the balance sheet consist of five headings:

  • The stocks and work in progress: these are all goods and services involved in the company’s operating cycle to be sold or consumed in the production process;
  • Advances and payments on orders: when a company places an order with its suppliers, the latter can ask for an advance or an advance payment as an advance;
  • Receivables: These are receivables that the entity holds towards third parties (for example, customers, the public treasury, social agencies);
  • Marketable securities: commonly referred to as VMPs, are securities acquired for the purpose of making a short-term gain (purchase for resale). They will not be permanently retained by the entity;
  • Availability: this category includes all cash deposits and positive balances of bank accounts;
  • The prepaid expenses: this section allows neutralizing the impact of charges that have been recognized in respect of a period but relating to a subsequent period.